# README.txt

---

This ZIP archive contains the computational codes for the paper *“Endogenous Risk Aversion in Real Business Cycle Models”* by Orhan Torul.

## Instructions

1. **Unzip all files/folders within the main directory** before proceeding.

2. Within the main directory, you will find three folders, each corresponding to a specific parameter set:

    - **benchmark**
    - **Hansen-Rogerson** (linear disutility model)
    - **high risk aversion**

    The folder names within these directories are suffixed as follows: `-b`, `-hr`, and `-ra` respectively.

3. Each of these folders contains five subdirectories:

    - **M030**  
    - **M015**  
    - **P000**  
    - **P015**  
    - **P030**  

    Here, the prefixes **M** and **P** denote **Minus** and **Plus**, while the numerical value (e.g., 030) corresponds to a gamma value of 3.00. For reference:

    - **M030:** gamma = -3.00  
    - **M015:** gamma = -1.50  
    - **P000:** gamma = 0.00  
    - **P015:** gamma = 1.50  
    - **P030:** gamma = 3.00  

## Parameter Set Differences

1. **Benchmark Parameter Set**  
   - Labor Disutility Aversion Coefficient: eta = 4/3  
   - Risk Aversion Coefficient: sigma_cbar = 1.50  

2. **Hansen-Rogerson Parameter Set**  
   - Labor Disutility Aversion Coefficient: eta = 0  
   - Risk Aversion Coefficient: sigma_cbar = 1.50  

3. **High Risk Aversion Parameter Set**  
   - Labor Disutility Aversion Coefficient: eta = 4/3  
   - Risk Aversion Coefficient: sigma_cbar = 3.00  

Additionally, for all three parameter sets, the acyclical risk aversion coefficient (P000) is calibrated via the psi (labor disutility multiplier) such that the hours worked (n) in the model equal 0.30. The calibrated psi parameter remains consistent within each P000 parameter set.

## Benchmark Parameters (Acyclical P000 Set)

- **alpha**       = 0.36  (Cobb-Douglas capital coefficient)  
- **beta**        = 0.99  (Future discount rate)  
- **delta**       = 0.02  (Depreciation rate)  
- **eta**         = 4/3   (Labor disutility aversion coefficient)  
- **psi**         = 14.5429 (Labor disutility multiplier)  
- **rho_z**       = 0.95  (Persistency coefficient of Solow residual)  
- **sigma_z**     = 0.007 (Standard deviation of Solow residual)  
- **sigma_cbar**  = 1.50  (Base risk-aversion coefficient)  
- **ybar**        = 1.22491 (Benchmark steady-state output)  
- **gamma**       = 0.00  (Sensitivity of risk aversion coefficient to output)  

## Contents of the Folders

The folders include `.mod` files that can be executed using **Dynare** (a Matlab add-on for local approximation). Additionally, you will find auxiliary Matlab files such as `acorr.m`, `autocorr.m`, `hp.m`, and `matrix2latex.m` for generating the following output files:

- `steady_a_X0YZ0.tex`  
- `tableDescriptive_a_XYZ.tex`  

**Note:** Here, `a` takes the values `b`, `hr`, and `ra`, `X` can be either `P` or `M`, and `YZ` denotes `15` or `30`.

## Contact

For any inquiries, please feel free to contact:

**Orhan Torul**  
*Associate Professor*  
Department of Economics, 
Boğaziçi University  
34342 Bebek, Istanbul, Turkey  
**Phone:** (+90) 212 359 6677  
**Fax:** (+90) 212 287 2453  
**Email:** [orhan.torul@bogazici.edu.tr](mailto:orhan.torul@bogazici.edu.tr )   
**Website:** [https://orhantorul.com](http://orhantorul.com)  
